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TMI Blog1965 (4) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... oiding the allotment, the company has chosen to affirm it. The allotment is, therefore, valid and binding on the allottees. For all the reasons, we hold that the allotment is valid, and there is no failure of consideration. Appeal dismissed. - 801 AND 802 OF 1962 - - - Dated:- 15-4-1965 - A.K. SARKAR, J.R. MUDHOLKAR AND R.S. BACHAWAT, JJ. Purshottam Trikamdas, V.J. Jhaveri and S.N. Andley for the Appellants. K.H. Bhabha, Iqbal Chagla and J.B. Dadachanji for the Respondent. JUDGMENT Bachawat, J. - The Bank of Poona Ltd., (hereinafter referred to as the company ) now amalgamated with the Sangli Bank Ltd., was incorporated in 1945. The company was promoted by N. G. Parulekar and Murlidhar Chaturbhuj Loya. The authorised capital of the company was rupees fifty lakhs divided into 50,000 ordinary shares of ₹ 100 each. By the end of April, 1946, the company was able to find subscribers for 4,860 shares only. In view of section 277(1) of the Indian Companies Act, 1913, the company was unable to carry on business unless the subscribed capital was not less than half the authorised capital. In order to comply with the requirements of section 277(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The Reserve Bank of India was pressing the company to take steps in respect of the advances to Ramnath. In these circumstances, Ramnath repaid to the company ₹ 18,500 on December 29, 1950 and ₹ 1,500 on January 2, 1951. At the same time, on January 6, 1951, the company gave a new loan of ₹ 20,000 to Ramkisan Ramratan Somani and Ramnath, and the borrowers executed a joint and several promissory note in favour of the company for the sum of ₹ 20,000. In respect of this loan, a separate loan account was opened in the books of the company. In his loan account No. 9, Ramnath repaid ₹ 1,00,000 on December 27, 1951, and ₹ 4,198-8-0, on December 29, 1951, and as a result of the last payment, the account was closed. The above sum of ₹ 1,00,000 was paid on behalf of Ramanth by Narayandas, who on the same date obtained a loan of ₹ 1,00,000 from the company. On the same date, Narayandas executed a promissory note for the sum of ₹ 1.00,000, a letter of pledge and trust receipt in respect of cloth, saris, etc., valued at ₹ 1,50,000 and a separate loan account No. 6/184 in his name was opened in the books of the company. In spite o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans nor take any benefit thereunder. He also suggested that he or Ramnath did not repay any moneys out of their own pocket, and all repayments in the accounts were made out of the moneys received by him from the company. At the trial the company did not examine either Loya or Parulekar. It may be that Loya and Parulekar gave some understanding to Narayandas with regard to the disposal of the shares, and in view of this understanding, they subsequently executed in favour of Narayandas two letters dated December 27, 1951, whereby Parulekar agreed to buy from him 500 shares and Loya agreed to buy from him 800 shares. But these assurances if any were given to Narayandas by Parulekar and Loya in their individual capacity and not as directors of the company. There is no record of any assurance given on behalf of the company to Narayandas in the minutes of the board meetings. Narayandas and his nominees, Goverjabai, Kamalabai and Jivanbai, dealt with the shares on the footing that they were the owners of the shares. Some of the shares were transferred to third parties under transfer deeds executed by Jivanbai, and the sale proceeds were credited to the loan account of Narayandas. Jivanba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors did not make any other determination with regard to quorum, and at all material times, a quorum of three was required for a directors' meeting. The board meeting of May 25, 1946, was attended by three directors only, namely, M.C. Loya, D.R. Nayak and Narayandas. At this meeting, the directors resolved to allot 2,000 shares to the nominees of Narayandas. Narayandas was clearly interested in the allotment of the shares. Section 91B(1) of the Indian Companies Act, 1913, provided that No director shall, as a director, vote on any contract or arrangement in which he is either directly or indirectly concerned or interested nor shall his presence count for the purpose of forming a quorum at the time of any such vote ; and if he does so vote, his vote shall not be counted. The Poona Bank Ltd. was a public company, and section 91B(1) applied to its directors. Narayandas, therefore, ought not to have voted at the meeting of May 25, 1946. If his vote is excluded, there was no quorum for the meeting. Mr. Purushottam Tricamdas therefore, contended that the allotment of 2,000 shares to the nominees of Narayandas at this meeting was invalid and no title passed to the allottees in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he existing rule of equity in the form of a statutory provision. In Pratt ( Bombay ) Ltd. v. M.T. Ltd. and Sassoon and Co. Ltd. v. Pratt ( Bombay ) Ltd. [1938] 8 Comp Cas 137 (PC), Sir George Rankin observed that the section is a concise statement of the general rule of equity explained in the Transvaal Lands Company's case [1914] 2 Ch 488, and he pointed out that the impugned transactions oil which the interested directors had voted, were voidable by the official liquidator of the company. The voting by the interested director, of itself, does not invalidate the contract. The effect of section 91B is that the vote of the interested director must be excluded, and if as a result of such exclusion there is no quorum, the resolution sanctioning the contract is irregular and the contract is liable to be avoided by the company against the directors and any other contracting party having notice of the irregularity. Section 91B is meant for the protection of the company, and the company may, if it chooses, waive the irregularity and affirm the contract. We think that the allotment of the 2,000 shares to the nominees of Narayandas in the meeting of the directors of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries in the books of account amounted to payment of ₹ 1,00,000 by the company to Narayandas by way of a loan and repayment of the same amount by Narayandas to the company towards discharge of the indebtedness of Ramnath in the latter's loan account with the company. The result was as if the company had paid a sum of ₹ 1,00,000 in cash to Narayandas and then Narayandas had returned the amount to the company with instructions to credit it to Ramnath. To support a plea of payment, it is not necessary to show that cash passed. Illustration ( a ) to section 50 of the Indian Contract Act, 1872, shows that payment may be made by means of transfer entries in books of account. The company has sufficiently established a payment of ₹ 1,00,000 by it to Narayandas by way of loan on December 27, 1951. Mr. Purushottam Tricamdas contended that the loans to Narayandas and Ramnath were financial assistance by the company for the purpose of or in connection with the purchase of its shares by Narayandas or his nominees, and the loans being in contravention of section 54A(2) of the Indian Companies Act, 1913, were illegal and could not be recovered. Mr. K. N. Bhabha contended ..... X X X X Extracts X X X X X X X X Extracts X X X X
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